With a string of sales successes in Algeria, Egypt, South Africa, Tunisia, the Ivory Coast, Nigeria and Kenya safely under is belt, an increasingly assertive Airbus Industrie has sent a warning shot across the bows of its US rival, Boeing.
The message is clear: Boeing should no longer regard its dominance of Africa’s aircraft market as sacrosanct. Skilful salesmanship and nimble political footwork have enabled the European aircraft consortium to establish a firm beach-head in traditional Boeing territory, forcing officials in Seattle to embark on a thorough re-examination of the company’s market strategy.
Until recently, Boeing’s position as the premier supplier of jet aircraft to Africa seemed unassailable. Of the total 525 aircraft operated by Africa’s international carriers in 1983, 346 were jets, the most common types being the Boeing 737 (86), 707 (72), 727 (52) and 747 (23). The rise of Airbus Industrie, however, has sparked off an intense competition between the two aircraft manufacturers. The stakes have been heightened by the US$12 billion African carriers are expected to invest in fleet renewal over the next decade.
A sense of urgency has been added to Africa’s fleet modernisation programme by the new, stringent noise regulations in the US and Europe. The International Civil Aviation Organisation (ICAO) estimates that the new noise restrictions will affect 121 four-engined jets currently operated on services to Europe by 41 African carriers. In particular, the sales battle between Airbus and Boeing has crystallised around Africa’s Boeing 707 and McDonnell Douglas DC-8 replacement market. Frits Winkelmann, Airbus Industrie’s Sales Director for Africa, says 57 of such units must be replaced within the next two years. Boeing and Airbus are offering their twin-aisle, twin-engine jets, the 767ER and A310, respectively.
Contrary to expectation, the precarious financial position of most African airlines has not encouraged them to hush-kit or re-engine their existing fleets in preference to making huge capital outlays on state-of-the-art equipment. Hush-kit firms such as Comtram point out that, for a relatively small investment, African carriers can add years of productive life to their trusty 707s. African officials acknowledge that no other comparably priced aircraft can match the 707’s combination of speed, range and payload, but say that hush-kits will not produce the fuel economies they desperately need. Besides, the airlines add, if they do not quickly graduate to modern wide-bodies their chance of wresting hard currency passengers from their better equipped foreign competitors will be negligible.
The bigger, four-engine and three-engine jets (Boeing 747, DC-10 and TriStar) are either beyond the traffic capacities of most African airlines or lack sufficient range. With great difficulty, Zambia Airways lease-purchased a DC-10-30 last year to replace 707s on routes between Lusaka and Europe, bringing the number of DC-10 operators in Africa to six. However, McDonnell Douglas’ hope that the Zambian purchase would spark off a regional trend has not yet materialised, as most countries are now opting for the smaller Boeing 767 and A310. The apparent relegation of McDonnell Douglas and Lockheed has effectively turned Africa’s wide-body aircraft sweepstakes into a two-horse race between Boeing and Airbus Industrie.
With almost missionary zeal, sales representatives from both companies have embarked on frequent forays through Africa in the search for customers. Airbus officials highlight the A310’s fuel efficiency, operational flexibility and advanced technology, and they tantalise cash-starved African airlines with the “revenue-generating” advantages offered by their aircraft’s greater capability. Boeing counters that the 767’s ability to fly from hot and high airfields, its short-field performance, greater fuel capability and non-stop 5,200 nautical miles range (compared to the A310’s 2,800 nm limit) make it ideal for Africa. Not to be outdone, Airbus says that 63% of air traffic originating in Africa flies to Europe, compared to only 5% across the North Atlantic, and 98% of the other capacity is flown on sector lengths less than 3,000 nm.
Beyond the heavy dosage of sales patter, tough negotiations and deft manoeuvres are invariably underway behind the scenes. The intensity of the competition is illustrated by the recently concluded battle to win a 707 replacement order from Kenya Airways. Much to Boeing’s chagrin, Airbus Industrie emerged the victor – winning an order worth US$133.3 million for two A310-300s. The financial haggling and political arm-twisting that surrounded the three-year contest new seem set to become hallmarks of future sales battles as the two manufacturers’ bandwagons roll inexorably on through Zimbabwe and other prime African aircraft markets.
The Kenya Airways saga started in 1981 when the airline announced that it needed an aircraft that could fly non-stop between Nairobi and London, with a full complement of passengers and 10 tonnes of cargo; requirements which reflected Kenya’s economic dependence on tourism and agricultural exports to Europe. Boeing quickly became the front-runner, but soon found itself locked in a fierce struggle with Airbus Industrie, both companies trying to undercut each other’s sales package.
A striking feature of the contest was the diplomatic jousting that ran parallel to the sales offensive. US and European diplomats and senior Government officials put continuous pressure on the Kenyan Government in a bid to influence its decision. It was no coincidence that France’s Deputy External Affairs Minister, Jean-Marie Baylet, paid an official three-day visit to Kenya just before the A310-300 deal was officially announced. Baylet said in Nairobi that France was about to embark on major industrial projects in Kenya and that political, economic and cultural ties between the two countries would be strengthened.
Airbus officials in Toulouse regard their triumph in Kenya as retribution for the audacity with which Boeing won a US$150 million EgyptAir aircraft order from under their noses in 1983. Airbus had assumed the Egyptian national carrier, a big A300 customer, would opt for the A310 to replace its ageing 707s. European confidence was further boosted by the letter of intent it received from Egypt. But Boeing pulled off a coup by ousting Airbus Industrie and clinching an order for three 767-200ERs, plus options on two more. As a final inducement, France offered Egypt the possibility of collaborating in building Airbus aircraft if it cancelled the Boeing order – to no avail.
Ethiopian Airlines has become a cornerstone of Boeing’s marketing strategy in Africa. The company believes that the modern overhaul facilities available in Addis Ababa and the airline’s impressive track-record in maintaining Boeing aircraft operated by several other African carriers, could be decisive in clinching orders. Now Boeing is helping Ethiopia to establish 767 maintenance facilities. However, Airbus Industrie’s Fritz Winkelmann claims that Boeing has made a big mistake by concentrating all its efforts on one country.
Says Winkelmann: “Other African countries feel neglected by Boeing and wonder why Ethiopia alone is getting all the benefits. At first, we thought we would have to do the same but after careful examination of all the factors involved we concluded that African-operated Airbus aircraft should be maintained in France.” Minos, the pool of A310 spares and maintenance facilities set up by Sogerma, Air France and Sabena, was created with African airlines in mind. A Minos official says African pool members like Air Algérie and Nigeria Airways stand to make considerable savings on capital investment in spares holdings. Another key attraction is the transfer of technology. Minos says its service will, in the long run, enable African carriers to attain independence in aircraft maintenance.
The influence of product-support factors on African aircraft purchases should not be underestimated. The African Airlines Association (AFRAA) is canvassing for increased sub-contracting and co-operation among its 36 members in the overhaul of airframes, engines and components. The pan-African body has already developed standard specification guidelines for the 747, 757, 767, 737, A300 and A310, and is expanding its own technical (spare parts) pools to cover other aircraft types.
At a very early stage, Boeing and Airbus Industrie both realised that securing firm orders from under-capitalised African carriers depended to a great extent on the level of financial support they could provide. Despite this general consensus, the two companies have demonstrated contrasting philosophies in their handling of African transactions. On the one hand, the Americans stress the importance of private sector lenders and market rates, while on the other, the Europeans, particularly the French, enthusiastically endorse export credit subsidies and Government involvement. The upsurge in Airbus sales has often led Boeing officials to accuse their rivals of selling aircraft at below the cost of production, an accusation which Airbus Industrie’s Arthur Howe flatly denies.
The European aircraft consortium says it has always respected the international agreement on export subsidies for wide-body jets and is not competing unfairly against Boeing. Paradoxically, Boeing claims that it offered Kenya Airways a financing package US$7 million lower than Airbus Industrie, with a lower overall interest rate and an earlier delivery date.
An aggrieved Boeing official cites economic inducements and political pressure as the major reasons his company lost the order “out of the blue”. But a Kenya Government spokesman simply said that the country has opted for the better financial package.
Invariably, the level of US Export-Import (Exim) Bank involvement in purchases of Boeing aircraft by African airlines is determined by the competition mounted by non-US manufacturers, a fact illustrated by the sale of Boeing 767ERs to Ethiopia and Egypt. As an established Boeing customer with a special interest in maintenance contracts from other African Boeing operators, Ethiopian Airlines was never likely to decamp to Airbus Industrie. This actually reduced the carrier’s bargaining power. It had to accept an expensive, 8-year commercial loan, backed up by Exim Bank financial and expropriation guarantees. It was also compelled to make a hefty, up-front payment. In sharp contrast, EgyptAir was won over from Airbus Industrie by a more attractive financing package which included a US$147.1 million direct credit from Exim Bank.
The full impact of the Exim Bank’s decision to replace its direct credit with subsidised interest rates on commercial loans is yet to be ascertained. Banking circles claim that, at best, these low interest rates will only match – not undercut – those offered by overseas competitors leaving US companies, such as Boeing, with little room for manoeuvre on the financial front. In view of the low credit rating of most African countries and the attendant financial and political risks, US commercial banks are anxious to minimise their debt exposure in this region, and have reservations about Exim’s desire to base export credit mainly on guarantee authority and insurance funding.
Notwithstanding these reservations, Boeing’s Executive Vice President, Joe Sutter, is bullish about his company’s prospects in Africa and says the new Exim Bank measures will not reduce sales. Sutter anticipates that leasing will become an increasingly important mechanism for financing aircraft acquisitions in Africa and other developing regions. It is expected, he says, that the Beverly Hills-based International Lease Finance Corporation (ILFC), which has just signed a US$1 billion deal with Boeing involving 767-200ERs, 767-300s and 737-300s, will serve as a conduit for aircraft leasing ventures in Africa.
Neither Boeing nor Airbus discount the possibility of barter trade. Says Winkelmann: “We shall consider it very seriously if the need arises.” In particular, Airbus believes that offset deals could prove very useful in launching the A320 into the African market. The first African A320 customer, Tunis Air, has ordered seven of the 150-seat airliners. Meanwhile, Boeing sold two 737-200s to Angola and Cameroon this year for US$36 million. It is also on the verge of obtaining an order for 767-200ERs from Angola’s national airline, TAAG.
With Zimbabwe, Mauritius and several other African countries still to choose between the 767 and A310 the aircraft sales battle shows no sign of winding down. Indeed, having taken up Airbus Industrie’s gauntlet, Boeing expresses its determination to remain Africa’s major supplier of aircraft well into the next century.